Rarely, according to a recent Federal Trade Commission (“FTC”) enforcement action against two nationally known hair restoration businesses—Bosley and Hair Club. However, before you start chatting up your competitor for information, pick up the phone and call your lawyer for advice.

So, what got Bosley and Hair Club clipped? For more than four years, Bosley’s and Hair Club’s CEOs repeatedly exchanged competitivel sensitive, nonpublic information regarding their hair transplantation businesses. The CEOs directly exchanged detailed information about future product offerings, prices, discounting, forward-looking expansion and contraction plans, and operations and performance. According to the FTC complaint, Bosley even viewed these information exchanges “as business as usual.” The FTC alleged that Bosley’s and Hair Club’s “tacit understanding” to exchange competitively-sensitive, non-public information “had the purpose, tendency, and capacity to facilitate coordination and served no legitimate business purpose.” Notably, the FTC did not allege, for example, that Bosley and Hair Club agreed to fix prices, or eliminate discounting. (Even so, don’t be surprised if antitrust class actions soon follow.)

So, what’s the big deal then? According to the FTC’s Analysis of Agreement Containing Consent Order to Aid Public Comment, competition may be unreasonably restrained whenever a competitor directly communicates, solicits, or facilitates the exchange of competitively-sensitive information with its competitors, particularly where such information is “highly detailed, disaggregated, and forward-looking.” The risk to competition from such exchanges is three-fold, the FTC said. First, the agreement to exchange the information can “mutate” into an actual conspiracy to fix prices or otherwise restrict competition. Second, the exchange may help rivals coordinate future conduct, even in the absence of an explicit agreement. And third, knowledge of a competitor’s plans reduces uncertainty and enables rivals pull their own competitive punches, even in the absence of actual coordination.

So, what is competitively sensitive, nonpublic information? According to the FTC’s Proposed Consent Order, competitively sensitive, nonpublic information includes without limitation “non-public information relating to pricing or pricing strategies, costs, revenues, profits, margins, output, business or strategic plans, marketing, advertising, promotion, or research and development.” However, it does not include information that (1) has been communicated publicly to current or prospective customers or investors through widely accessible methods (e.g., websites, analyst conference calls, press releases, and other methods of advertising), or (2) has been communicated publicly are required by the federal securities laws. Beware though; there is significant risk in attempting to use public speech—for example, a public company’s earnings calls—to coordinate with your rivals.

So, when is it okay to exchange competitively sensitive, nonpublic information with a competitor? According to the Proposed Consent Order, where the exchange is “reasonably related to a lawful joint venture or as part of legally supervised due diligence for a potential transaction, and reasonably necessary to achieve the procompetitive benefits of such a relationship.” (Although not mentioned in the Proposed Consent Order, pre-integration planning associated with a contemplated transaction is another area where exchanging competitively sensitive, nonpublic information is reasonably necessary under appropriate legal supervision.)

So, what should I do then? Again, seek legal advice before exchanging competitively sensitive, nonpublic information even if it is part of due diligence, or pre-integration planning associated with a contemplated transaction.

A concluding note on the FTC’s legal standard:  Information exchanges aren’t automatically unlawful (i.e., per se illegal) under the antitrust laws, unlike hard-core offenses as price-fixing or market division. Ordinarily, information exchanges are subject to the rule of reason; they’re illegal only if they actually reduce competition. Here, the FTC did not allege an actual reduction of competition, but because the exchange involved the most sensitive types of competitive information, and because it had no legitimate purposes, the FTC appears to have applied a rule of reason test so truncated as to be practically indistinguishable from per se illegality.